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FINS3630-Bank Financial Management T1 2026
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Unicorn Bank has the following balance sheet:
Assets | Liabilities and Equity | ||
Cash | 21,000 | Demand Deposits | 550,000 |
Short-term Securities | 369,000 | Interbank Funds Borrowed | 151,000 |
Loans | 400,000 | Equity | 89,000 |
Total | 790,000 | Total | 790,000 |
Using purchased liquidity management techniques, how can the bank address an expected net deposit drain of $20,000?
Which one of the following statements is CORRECT with regards to liability management?
Cadigal Bank has compiled the following migration matrix on consumer loans. The higher the risk grade the higher the default risk. If in the most recent year, the bank manager finds that the transition probability from risk grade 3 to 2 is 0.03 and to 4 is 0.18, then the bank manager should take which of the following actions to reduce concentration risk?
| Risk Grade at End of Year | ||||
|
| 1 | 2 | 3 | 4 |
Risk grade at beginning of year | 1 | .88 | .08 | .02 | .02 |
2 | .10 | .84 | .03 | .02 | |
3 | .02 | .09 | .78 | .11 |
Identify the option that constitutes a direct cause of liquidity risk for a deposit‑taking institution.
Among the funding sources below, which one is most exposed to withdrawal risk?
For a major retail bank, customer deposits are generally treated as the least stable source of funding.
Newline Bank has made a one-year loan to Wonder Blocks Pty Ltd, a firm that manufactures toy blocks. The estimated probability of default of this loan is 9.2%. The bank has also made a two-year loan to Wonder Blocks that provides a return of 10.8% per annum if the loan is not defaulted. And the bank will lose all the claims on principal and interests upon loan default. The yield is 2% per annum for the 1-year maturity government bond. Based on the prices of 1-year and 2-year maturity government bond prices, the forward rate for the 2nd year is 4% per annum.
What is the cumulative probability of repayment (i.e. not default) of Wonder Blocks over the two years?
(Please round your answer to at least 3 decimal places in decimal points, not percentage terms.)
Recent market conditions have seen interest rates rise worldwide. Which of the following potential consequences could affect banks as a result? Select all that apply.
Which of the following statements about a loan portfolio are INCORRECT?